Afghanistan’s recent economic recovery may be at risk, warns World Bank

The World Bank released its latest twice-a-year report regarding the development update in Afghanistan and warned that the country’s recent economic recovery may become at risk.

The report states that following the economic shock of the withdrawal of international troops, the associated decline in aid and deterioration in security, and the period of political instability after the 2014 elections, the Afghan economy has slowly regained momentum as reforms have been implemented and confidence restored, with the GDP growing from a low of 1.5 percent in 2015, to 2.3 percent in 2016, and reached 2.7 percent in 2017.

However, the report states that this trend now appears to be at risk, with increasing election-related violence, declining business confidence, worsening drought conditions, and apparent slowing of economic activity.

According to the World Bank report, growth is projected at 2.4 percent in 2018, with substantial downside risks arising from the prospects of political instability around upcoming parliamentary and district council elections and presidential and provincial council elections, scheduled for October 2018 and April 2019 respectively.

“At the current juncture, the most important priority for the government and its international partners is to maintain public confidence to support growth and job creation,” said Shubham Chaudhuri, World Bank Country Director for Afghanistan. “More than half of Afghans now live in poverty. We cannot afford to see the current momentum lost.”

According to the World Bank, government macroeconomic policies remain appropriate in the current conditions. The fiscal deficit for 2017 was low at around 0.5 percent of GDP, and a similar deficit is expected in 2018. The deficit will be financed largely from cash reserves, which remain at comfortable levels. Revenues remain strong, with domestic revenues reaching a new high of 12.3 percent of GDP in 2017. Consumer price inflation remained moderate in 2017, at around 3.1 percent, and is expected to remain at moderate levels through 2018.

According to Chaudhuri, sustaining the recent recovery will require enhanced government efforts to improve the business environment and catalyze private investment and job creation while ensuring smooth election processes. He noted that the international community also has a key role to play: “Sustaining international support is critical to overall confidence and underpins the capacity of the government to implement the reforms we all view as vital.”

The World Bank states in its report that it is projecting a gradually accelerating growth over coming years, assuming a relatively smooth election process, no further deterioration of the security environment, and the absence of political instability that followed 2014 elections.

According to World Bank, growth is expected to reach 2.8 percent in 2019 before accelerating gradually to 3.6 percent in 2021.

Chaudhuri noted that much faster rates of growth would be required to make a substantial impact on poverty. “Significantly faster growth could be achieved by mobilizing investment in extractives, energy and connectivity, building and harnessing the skills of Afghanistan’s youth and women, and taking steps to realize the job-creation potential of agriculture and agribusinesses” he said.

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